Brazilian service providers record rebound in new work in October, services PMI index rises to 50.5

Service providers in Brazil saw a rebound in new work in October, leading to a renewed upturn in business activity and the first growth in jobs in more than three-and-a-half years. The seasonally adjusted IHS Markit Brazil Services Business Activity Index came in at 50.5, posting in expansion territory for the initial time in three months. However, the latest figure was indicative of a marginal growth rate.

Output rose at Information & Communication and Finance & Insurance firms, while further reductions were clear in the remaining three categories. The renewed rise in services activity, coupled with a sustained rise of manufacturing production, resulted in a return to growth of private sector output. The Brazil Composite PMI Output Index rose to 50.5 in October, a level in line with a marginal rate of growth.

Leading services activity to increase was a return to growth of new work, after contraction at the end of the third quarter. Service providers recorded a modest rise in sales, although one that was the most rapid since July and above the long-run survey average. Anecdotal evidence underlined rebounded underlying demand and successful marketing attempts. Order book volumes at manufacturers’ grew at a slight rate that was softer than seen in the service sector.

Data in October continued to hint at spare capacity among services firms, as outstanding workloads dropped further. The decline in backlogs was the 39th in as several months and the most pronounced in the survey history. Similarly, goods producers noted a marked fall in working-hand, although one that was the softest in the current four-month period of depletion.

The completion of outstanding business at service providers was helped by a renewed rise in employment. Companies recorded job creation for the first time in 44 months, but the rate of growth was marginal overall and curbed by cost-reduction initiatives at some firms. Similarly, manufacturing jobs rose, with growth at a seven-month high.

Business confidence among services companies remained positive in October, with close to 74 percent of panellists upbeat towards the prospects of activity in the coming 12 months. Stimulating sentient was the end of the elections and an associated reduction in political uncertainty. Positivity climbed to a five-year peak. Sentiment stayed elevated at goods producers, in spite of waning to a three-month low.

Services costs rose again, which companies attributed to volatility in financial markets, unfavourable exchange rates, collective bargaining and higher fuel prices. The pace of inflation was sharp overall and picked up to the most rapid in three months.

Services providers hiked their selling prices for the fifth consecutive month in October. On the contrary to the trend for input costs, the upturn in charges was modest and softened to the weakest in the current period of increases. Curtailing inflation were competitive conditions and attempts to retain current customers. Factory gate charges likewise rose at a slower rate.